How to Stand Up to Your Student Loan Servicer

Perhaps there's a bit of irony in the name "student loan servicer," considering the number of stories out there about the less-than-satisfactory customer service they provide. The Consumer Financial Protection Bureau started collecting complaints about student loan servicers in March 2012, and the most recent annual report from the CFPB said the bureau had fielded 3,800 complaints about private loan servicers between October 2012 and September 2013.

Borrowers mentioned frustrations when seeking customer service and complained that miscommunication sometimes resulted in costly errors, like missed or mis-processed payments. Not only can such issues make the borrower pay more out of pocket, they can also affect people's credit scores, since payment history is the most important part of your credit profile.

An Indianapolis woman recently experienced these frustrations firsthand. Chris Boehm, a doctor of veterinary medicine, is six years into repaying about $138,000 in loans for four years of vet school, and she never encountered problems until October. That's when her loan was sold from one student loan servicer to another.

Following a saga that spanned five months and involved an accidental double payment, a missed payment, forbearance and a huge jump in monthly payments, Boehm can happily say her problems were solved. It's a refreshing story among the thousands without happy endings. (Just before her issue was resolved, Boehm was ready to file a complaint with the CFPB.)

While consumers may find comfort in the CFPB's mandate to improve student loan servicers, the best advocates borrowers have at their disposal right now are themselves. Boehm and her husband dedicated time to calling customer service representatives and documenting loan payment activity so she could prove her case: that error after error had hit her account, and it was not her fault.

Pay Attention to Details

It all started when her new servicer debited her account twice for October's payment - the first time this had happened with the new company. When the loan was sold, she had set up automatic payments, but as soon as she saw the double charge, she called customer service. A representative told her she could leave it and pay twice, but at $714 a month, it wasn't in the budget. She had to fill out some paperwork to reverse the second payment.

%VIRTUAL-article-sponsoredlinks%What they didn't tell her: The reversal shut off her automatic payments. (The servicer told Boehm that she should have seen a notice about the payment cancellation when she reversed the second October charge, but she didn't see it, nor could she find it online after the fact.) The November due date came, and the payment didn't hit her bank account, but she was paying attention and went on to take care of the bill immediately. She also set up the automatic payment again.

"Thank God I printed the receipt for that," she said. When she made her request to set up the auto-debit system, the site displayed a timestamp, and she printed it. December rolled around, and again, no auto-debit occurred. She didn't notice as quickly this time but went online to pay the loan late.

Document Everything

Next, Boehm found out her loan went into forbearance, pushing her next payment to February. This was in December, and at this point she had started printing every bit of information that popped up when trying to manage her loan. Even while payments are suspended due to forbearance, the loan accrues interest, and Boehm saw her monthly payment jump $50. About $300 in capitalized interest was added to her balance because of the forbearance (meaning she would then have to pay interest on that interest), but Boehm said it just didn't make sense.

"We ran it through an amortization program, and it should have only cost $3 or $4 a month, not $50," Boehm said. "That $300 mistake was worth like $1,200 over the life of the loan."

She called customer service again, and a representative explained that's just the way it was, but she could write a letter to the correspondence department. In that letter, she cited the company's mission, vision and core values ("Customers are #1″ and "We strive to provide consistent, clear support for all of our customers."), and specifically outlined her requests:

I do not want the interest added to my principal

I want the forbearance erased from my account

I want my payments to go back to where they were

I want the auto-debit to work

She sent the letter Jan. 13, along with documentation of her transactions and account activity. By Jan. 21, the extra interest was removed. Boehm's February payment came out just fine - at least five phone calls, a letter and four payment periods after her first attempt.

"If you have your documentation to show the payments you made or the notes of what was agreed to, that's going to go a long way to helping you fix the problem," said Gerri Detweiler, Credit.com's director of consumer education. "The other thing to keep in mind is if this mistake has damaged your credit, and they won't fix it, you may have a basis from a credit damage lawsuit."

Boehm said she hasn't encountered credit issues, but Detweiler makes an important point: If late payments are reported to a credit bureau, it will hurt your credit scores, which heavily factor in payment history.

Don't Let the Lenders Get You Down

Boehm's success story speaks to some of the most common complaints borrowers have with student loan servicers - payment problems and poor customer service. Luckily for Boehm, she was able to clearly state her case and said that even though it took time and effort to get the error fixed, she dealt with some nice representatives later in the process.

"The young lady who called me was really apologetic," Boehm said. "That felt really nice. I felt like I was banging my head against the wall every time I called."

But the most frustrating part of the process wasn't necessarily the service. It was the fact that she had no control over who she worked with, since student loan borrowers can't choose their servicer. And the Boehms have never run into issues with loans, making the whole thing seem that much more unreasonable. With eight mortgages (they've moved a lot), a student loan in repayment and a home equity line of credit in her credit history, she was surprised to be treated the way she was.

"It's kind of crazy," she said. "If someone is treating you poorly you should be able to choose your loan servicer."

Alas, that's not the case. While the CFPB continues to watch servicer activity, it's up to you to defend yourself.

Christine DiGangi covers personal finance for Credit.com. Previously, she managed communications for the Society of Professional Journalists, served as a copy editor of The New York Times News Service and worked as a reporter for the Oregonian and the News & Record.